Ondrilla S Sarkar
Cloud kitchens, which were in vogue even a year ago, have witnessed a 50% fall in funding in the first six months of calendar year 2017 as compared to the same period in 2016, as the food tech space witnesses further consolidation. Data from research platform Tracxn reveals that only $9.6 million has been invested during the January-June period of 2017, as compared to $19.3 million raised during the the same period of calendar year 2016. Cloud kitchens are a full-stack end-to-end food delivery platform having a central kitchen with numerous outlets where food is prepared. There is no dine-in and no take-away either, with orders only placed online, and hence the name ‘cloud’ kitchen. Food tech start-ups who are aggregators, partner with restaurants across the city to deliver their food, but cloud kitchens are into the business of making their own food, distributing and delivering the same.
According to Tracxn, companies like HolaChef, Fingerlix, Box8, 48East and TinMen led the funding rounds in 2017. While Mumbai based HolaChef raised $5 million from Kalaari Capital and SIDBI, Fingerlix, another Mumbai based start-up raised $3 million from Zephyr. Bengaluru based FreshMenu had received the highest investments in 2016, followed by Box8, InnerChef and HolaChef. While Freshmenu raised $16.5 million in Series B, Mumbai based Box8 had raised $7.8 million. A total of 19 food tech start-ups have received funding worth $97.4 million in the first half of calendar year 2017 out of which the lion’s share was amassed by Swiggy which raised $80 million from Naspers in May. Out of the remaining $17.4 million, $9.6 million has gone into cloud kitchen based food tech companies.
With cloud technology facilitating online ordering, companies which have kitchen only operations, prepare their own meals with no dine-in facility, have come of age in the country. Many of the established online food aggregators like Swiggy have started The Bowl Company and Zomato has come up with Zomato Infrastructure Services (ZIS), their respective cloud based platforms. Alok Jain, founder and CEO at Yumist, a cloud kitchen, told FE that funding has fallen due to consolidation in this space. “In 2015-2016 there were some 400 plus cloud kitchen based start-ups and most of them have shut down. Most companies who called themselves cloud kitchens were not making their own food but buying from restaurants and delivering. A lot of these start-ups received angel and seed funding at that time but then the space consolidated, with most of them shutting down and others maturing their models into profitability,” he says.
“The biggest problems these start-ups faced was not being able to justify good unit economics. I know some brands whose food and packaging costs add up to 55% and you can’t make a profitable business with it. The other challenge is finding repeat customers with people being spoilt for choice with so many restaurants delivering food,” Alok said.
For Ritesh Dwivedy, co-founder at Petoo.in, not many food tech start-ups have been able to scale at the speed desired by an institutional investor, and there have been no exits and many funded start-ups have shut shop. The challenge, he believes, is not high competition or high set-up cost but building a scalable backend, since most food businesses are dependent on skilled manpower, and hence they become unscalable.